April 18, 2003
From the desk of Jane Galt:What's causing hte rise in government spending?
Kevin Drum says it's entitlements, which is true, and reasonable wage increases for government employees, which is not.
The thing is, he's right: the services provided to him and his family probably haven't changed much. In fact, most of the per capita increase in government expenditure over the past 40 years has come from Medicare, Social Security, and interest on the national debt, none of which benefit him at all — for the moment, anyway. And much of the rest of it comes from the fact that we pay government employees more, just the same as we pay private sector employees more these days too thanks to rising GDP and increasing prosperity. School teachers, for example, are no longer expected to do their jobs for $15,000 per year. But since Friedrich doesn't work for the government, that doesn't benefit him either.
If government wages were rising just in line with national income, we'd see no measurable effect on government spending as a percentage of GDP, which is how those increases are usually measured. (If you're measuring absolute dollars, even inflation adjusted ones, you get a lot more bang out of the more-than-doubling of the American population than any other factor.) GDP would rise by x%, salaries would also rise by x%, and the ratio would remain the same.
Where does most national income come from? Salaries. So government wages can't possibly be in line with private sector salaries and have any measurable effect on the ratio of spending to income.
Maybe salaries have increased more for the white-collar clerk professions that make up most government employment? But Drum has another post saying it ain't so. (That's also misleading, because such charts as I've seen that show stagnation leave out the effect of taxes, and tax free bennies like health care spending, which at 15% of GDP, is non-negligible.)
The rises definitely aren't coming at the top. An agency head pulls in under $200K. Try to find a private sector corporate officer or EVP with that many reports for under half a mil.
Any raises due to government spending come from the fact that:
1) We spend more on more programs
2) We pay government workers at the bottom of the pyramid more than any private sector equivalent would make, while paying people from the mid-level upwards much less, the famed Swedish model that the Left is always on about. The result is -- the quality of government services we all so enjoy.
3) We waste an enormous amount of time and effort on procedures designed to prevent fraud and/or the least little bit of unfairness, with the result that we all get the same level of crappy, incompetent service at inordinate cost.
I'm no expert on this but I think automatic % increases written into spending and taxation bills may have something to do with the increase in gov't's size. For example, did you notice that the administration's 401k ceiling is scheduled to rise by $1k per year to $15k after which point -- here's the key -- it is supposed to rise by the rate of inflation. Why the rate of inflation? Why not the rate of wage increases in the private sector? (There must be a gov't agency that produces that statistic.) The 401k limit is due to automatically shrink as part of our wages as a result after it hits $15k (since wages have historically increased faster than inflation). And how are tax brackets ratcheted upo annually?
It seems to me that many mechanisms like this are contributing to the seemingly inexorable increase in gov't. I'd really appreciate qualified commentary on this subject.
4) given this fabulous new budget deficit we are acquiring, i should think that larger and larger interest costs on that debt will play an even more significant role in the future rate of increase in gov't spending over the next ten years.
Megan, I think your discussion went offtrack somewhere. A labor-intensive industry will tend to cost more to run over time, as wages tend to rise faster than prices. This is part of the problem with the school system, and a big part of the US Postal Service's difficulties.
Wouldn't this explain why government services have become more expensive over time? Of course, we also have to factor in the lack of spending constraints. A private company would generally find ways to reduce labor usage or eventually go out of business, because there are very few situations where customers are willing to pay an ever-increasing invoice for the same service.
Government wages were scheduled to go up a lot more than they did. Bush 41 signed a "wage comparability" act, that was supposed to increase federal wages by 30% above cost of living, over a decade. The increases were to be automatic, unless the President declared an economic emergency.
Clinton 42 declared the US in a state of economic emergency for 7 of his 8 years in office, essentially cancelling the act. (He missed his first year in office.)
Can I sort of agree and disagree?
Salary increases are definitely responsible for much of the increase in the cost of government. That's just undeniable, and all you have to do is look at the federal payroll and adjust for inflation. It's gone up.
However, Megan is right about it as a % of GDP. However, as I mentioned in my post, nondiscretionary spending *hasn't* gone up as a % of GDP for the past half century. It was around 20% in 1955 and it's around 20% now.
BTW, I happen to agree about our obsession with fairness and fraud prevention. On the other hand, a little *more* obsession with tax fraud might actually be a good thing....
Of course 'entitlements' are really discretionary spending too. It is just that political cost of offending AARP is currently too high for anyone to exercise that discretion. It is too bad that I'm young enough to be certain that I won't ever get a penny back from Social Security, while being old enough to be certain that the costs it imposes won't be significantly changed until the end of my working life.
Jane Galt:
Do you have any evidence to support your claims 2) and 3)?
Sebastian H:
Of course 'entitlements' are really discretionary spending too.
No they're not. Entitlement spending is mandated by law. Discretionary spending is not.
It is just that political cost of offending AARP is currently too high for anyone to exercise that discretion.
Well, if that's true, what do you propose to do about it? Seems to me you're making an argument for campaign finance reform.
"No they're not. Entitlement spending is mandated by law. Discretionary spending is not."
Well, yeah, but the since the Congress that passes the budgets is the same Congress that writes the laws, this is a distinction without a difference. If the Congress had the political will, they would change the laws that create the entitlements. When you get right down to it, all government spending is made at the discretion of the Congress. Actually, you can look it up in the Consitution.
Nobody is guaranteed to have a nickel spent on them by the government in the Constitution. None of the so-called "entitlement" programs is mandated by the Consitution - we could repeal all of them tomorrow, and there would be no Constitutional violation. They all exist at the discretion of the Congress.
T. Hartin:
Well, yeah, but the since the Congress that passes the budgets is the same Congress that writes the laws, this is a distinction without a difference.
Of course it's a difference. The fact that it is "the same Congress" that passes different federal laws obviously doesn't mean that there is no meaningful difference between those laws.
If the Congress had the political will, they would change the laws that create the entitlements.
But they don't have the political will, because entitlements are hugely popular. You may want entitlement spending to be significantly cut, but most Americans do not seem to want that.
Kevin-
Has the number of gov't employees gone up as a percentage of total workforce? If so, then you and Megan could both be right; each gov't worker could be getting raises at approx the same rate as private sector employees, but the increase in total gov't workers would increase the total cost of gov't salaries.
Also - you say that unless we (who want to cut discretionary spending) are willing to make drastic cuts to Medicare and Social Security, we don't have much to complain about. If you are not willing to make these cuts, what do you think should be done as the costs of these programs overcome the payroll tax income? Do you want taxes to be increased enough to keep the programs constant? Are you willing for the regressive payroll tax to be significantly increased, or do expect a huge influx of income tax receipts to make up the difference?
I expect both that the payroll tax will have to be increased several points, and that benefits will have to be significantly cut. I expect the retirement age to be increased and there to be an income cap on benefits. This is why I, like Sebastian, do not expect to ever get any Social Security benefits, though I have been paying the max into it for several years and hopefully will continue to do so for 30 more.
But increasing the number of government employees is not giving each government employee a raise to bring their salaries in line with private sector salaries. For one thing, those salaries manifestly aren't in line with private sector salaries; they're extremely high at the bottom end, and extremely low on the top. And for another, if you're increasing the percentage of government employees as a percentage of the workforce, you're increasing the amount of programs or services (one hopes), not managing COLA.
A real problem with government pay scales is the "one size fits all" nature of the beast. If you are living in Boise Idaho on a New York City wage you are in clover. Not so if the reverse is true. Most private corporations allow for the disparities but not the government.
So we have to ask how the wages are determined?
Are government and private capital/labor ratios the same? Your math requires that they are. I think they are not.
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